When Efficiency Requires Arbitrary Discrimination: Theoretical and Experimental Analysis of Equilibrium Selection

Werner Güth and Hironori Otsubo
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Werner Güth: Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Straße 10, 53113 Bonn, Germany

Games, 2023, vol. 14, issue 5, 1-15

Abstract: Institutions may rely on fundamental principles, e.g., of legal philosophy, but may also have evolved according to institutional fitness, as gauged by a society’s well-being. In our stylized framework where two fundamental principles, equality and efficiency, conflict with each other, one of the three players is the third party who faces two symmetric co-players as culprits and determines whether to sanction the two culprits discriminatorily or treat them with parity. Relying on the theory of equilibrium selection, we derived equilibrium solutions and experimentally tested our behavioral hypotheses. We found that asymmetry in wealth between the two culprits let the sanctioning agent hold the richer culprit more responsible. Furthermore, our results demonstrated that when the sanctioning agent’s decision was observable, sanctioning the two culprits discriminatorily induced them to coordinate on an efficient outcome.

Keywords: equilibrium selection; discrimination aversion; laboratory experiment; social preferences; arbitrariness in sanctioning (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2023
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